Calastone to Migrate Fund Network to Blockchain-Enabled Platform in May 2019

Calastone, the global fund-transaction network, will be migrating its entire network of more than 1,700 financial organizations, across 40 global markets to a blockchain-powered marketplace, named the Distributed Market Infrastructure (DMI). 

The migration, which will take place in May 2019, will connect one of the largest communities in the funds sector using distributed-ledger technology, making it a first, but significant step towards the sector’s digitalization. 

The DMI will enable buyers and sellers to connect and transact. It creates a friction-free ecosystem within the trading, settlement, and servicing of funds. It also mitigates manual risks and costs for fund managers and investors, which Calastone says are embedded within the current system. .

Leo Chen, managing director and head of Asia at Calastone, tells WatersTechnology that the move to its new blockchain infrastructure will not impact how clients connect to Calastone. “Clients can connect to the DMI via their existing Calastone connector, so there are no technical or business process changes required,” he says. Clients will be able to move to the DMI when they choose to, and they will also have seamless connectivity to trading partners via the Calastone Transaction Network. 

According to Calastone, through the technological mutualization of the trading and settlement process, the overall global cost of fund distribution could be reduced by as much as £3.4 billion ($4.35 billion).

Calastone came up with this figure using data from advisory firm Deloitte’s study ‘Europe’s fund expenses at a crossroads; The benefits of mutualizing the cost of distribution,’ as well as data from the 2018 Investment Company Fact Book, which is a review of trends and activities within the investment company industry. Calastone’s calculation has been applied to mutual-fund assets under management for the global funds market, excluding the US. 

Chen says that much of the inefficiency and cost in the global mutual fund market is due to the complexity of the global network, different technology solutions standards and different trading processes. “The DMI operates all fund orders and settlements on a consistent basis, which allows for simpler global processing and increased efficiency. As a result, costs are reduced for all those involved in the process,” he adds.

Normalizing the fund orders and settlements process allows Calastone to introduce improved services to all participants, such as improved transparency for both clients and participants. “The DMI migration is set to help the market become a more efficient and effective service for each stage of the value chain. This includes the end-investor,” he says.

Calastone officials said in a statement, that by bringing all trading relationships together within the shared blockchain-enabled infrastructure, participants will benefit through the real-time view of each record, and also have a single version of the truth. 

Campbell Brierley, chief innovation officer at Calastone said, “Instantly this alleviates common friction points that exist today, including areas such as reconciliation and settlement, which are resolved automatically with all transactions being performed in the same environment. By making friction-free trading accessible to all parties in the value chain, we are creating an environment that marks an inflection point for the future of the funds sector, optimized to meet the needs of customers and investors now and in the long-term.”

The funds industry has long been riddled by manual processes, outdated systems, and technologies. This has led to a high cost of distribution which impacts the investor and marketability of funds, which compete with other forms of investment. 

This is due to the traditional way funds are traded, which Calastone says is opaque, fragmented and is not in the interest of investors. However, there are significant pressures on the industry to change to meet investors’ demands for greater speed, transparency and return on capital.

Stephen Leggett, COO at Calastone said the migration to the DMI will be a “seamless experience” for customers. Calastone is currently working with a number of clients on the DMI. 

In June last year, the network provider completed its first phase of the proof-of-concept (POC) for DMI. Three issues the POC addressed were the complexity of the marketplace; scalability of the technology to process large volumes; and feasibility of migrating to a DLT technology base. Calastone ran an internal POC where it represented its network, which at the time was 1,200 clients around the world.